Roméo Hinse v. Minister of National Revenue, [1979] CTC 2884, 79 DTC 740

Guy Tremblay [TRANSLATION]:—This case was heard at Quebec City, Quebec on April 18, 1979.

1. Point at Issue

The question is whether the appellant, a postmaster paid by salary, is correct in claiming for the 1976 taxation year

(a) the deduction of an assistant’s salary ($2,225);

(b) his contribution as an employer to unemployment insurance and the Quebec pension plan ($49.10);

(c) his annual dues to the Canadian Postmasters and Assistants Association ($91, including $12 insurance premium).

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in R l/l/ S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

3.01 For 41 years, the appellant was a postmaster employed by the Post Office Department in the municipality of Tingwick. On September 5, 1978 his employment ended.

3.02 Throughout this period the appellant was a salaried employee.

3.03 On August 23, 1976, the appellant was told by the Post Office Department (Exhibit A-2) that the Tingwick Post Office had moved from Category 6 to Grade 2, semi-urban, and this reclassification was retroactive to February 1, 1976.

3.04 The effect of this reclassification of the Post Office, in addition to increasing the salary of the postmaster and related fringe benefits, was to authorize him to hire a part-time person: four hours on Saturday afternoons at $4.30 an hour. The Post Office Department paid the amount on receiving an application on the appropriate form.

3.05 For thirty years the appellant had an employee, Miss Thibault, who continued to work for him in 1976.

3.06 The appellant paid her the sum of $2,225 (Exhibit A-1). This sum did not include the amounts received by her from the Post Office Department as a part-time employee on Saturday afternoons.

3.07 Further, the appellant spent $49.10 as Miss Thibault’s employer for her contribution to unemployment insurance and the Quebec Pension Plan.

3.08 The appellant paid the sum of $91 as dues to the Canadian Postmasters and Assistants Association (CPAA) for 1976 (Exhibit A-5). The purpose of this association was, inter alia, to improve working conditions. This amount included $12 for the cost of life insurance premiums (Exhibit A-6). The appellant was not entitled to be reimbursed the dues and was not in fact reimbursed.

3.09 The CPAA was certified on April 18, 1968 (Exhibit A-7).

3.10 A witness for the respondent filed the collective agreement (Exhibit I-2) governing postmasters and employees for the period from October 2, 1975 to October 2, 1977.

3.11 Since 1975, the appellant has also been employed by the municipality of Chénier to supervise and maintain the water supply system. This employment required him to be available at such times (his job in principle was 24 hours a day) that he could not perform his function as postmaster alone, and had to hire an assistant if he wanted to keep his second job. A letter from the municipality of Chénier to the respondent, dated August 15,1978, is to this effect.

4. Act— Case Law—Comments

4.1 Act

The principal sections of the new Income Tax Act involved in the case at bar are paragraphs 8(1)(i), 8(1)(1.1) and subsection 8(2). They will be cited below where necessary.

4.2 Case Law

The case law cited by the parties is the following:

1. J C Harel v Deputy Minister of Revenue of the Province of Quebec, [1978] 1 SCR 851; [1977] CTC 441; 77 DTC 5438;

2. Starlight Clothing Co v Deputy Minister of Revenue of Quebec, an unreported judgment of Judge Casgrain of the Provincial Court;

3. Skinner (G J) et al v MNR, [1973] CTC 2260; 73 DTC 208;

4. Francis J Hayes v MNR, [1973] CTC 2262; 73 DTC 210;

5. Robert Con I in White v MNR, 24 Tax ABC 242; 60 DTC 113;

6. No 706 v MNR, 24 Tax ABC 242; 60 DTC 303;

7. Donald F Homme v MNR, [1975] CTC 2026; 75 DTC 20;

8. No 33 v MNR, 5 Tax ABC 230; 51 DTC 430.

4.3 Comments

4.3.1 CPAA dues: $91

Counsel for the respondent admitted that the sum of $79, out of the $91 paid, was included in the annual dues as defined in subparagraph 8(1 )(i)(iv). However, he did not admit that the $12 (see paragraph 3.08 of the facts) used to pay life insurance premiums for members could be part of the annual dues. In fact, the Act does not define “annual dues” for maintaining membership in a union or an association of public servants. Reference must therefore be made to the word “ordinary”. The Larousse Classique dictionary defines the word “cotisation” (dues): “contribution par quote- part a des dépenses ou charges communes” (proportional contribution to common expenses or charges). The insurance premium paid on the lives of members whose beneficiaries are ordinarily the heirs of the deceased member cannot be regarded, in the Board’s opinion, as a common expense.

Accordingly, the Board allows only the amount of $79. It meets the terms of the aforesaid section and was moreover admitted by the respondent.

4.3.2 Assistant’s salary: $2,225

The facts set forth in paragraphs 3.02 to 3.06 of the facts are clear.

The appellant is claiming a deduction in reliance, first, on an opinion given to the CPAA by the respondent’s employees, and filed jointly as Exhibit A-8 with a letter, inter alia, from the secretary of the CPAA. Part of this opinion reads as follows:

The Income Tax Act provides that an allowance for rental received by the postmaster is regarded as employment income. However, expenses incurred for the rental of premises, a substitute’s salary, water, heating, electricity, minor repairs and cleaning equipment for post office purposes may be deducted from total employment income.

Counsel for the appellant admitted, however, that the respondent’s opinion or practice is not necessarily binding on the Board. He cited to this effect DeGrandpré, J in the aforementioned case, J C Harelv Deputy Minister of Revenue of Quebec.

If I had the slightest doubt on this subject, I would nevertheless conclude in favour of appellant on the basis of respondent’s administrative policy. Clearly, this policy could not be taken into consideration if it were contrary to the provisions of the Act. In the case at bar, however, taking into account the historical development that I will review briefly, this administrative practice may validly be referred to since the best that can be said from respondent’s point of view is that the legislation is ambiguous.

Learned counsel maintained that in the case at bar the enactment in question, subparagraph 8(1)(i)(ii) is ambiguous. It reads:

In computing a taxpayer’s income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto;

(i) amount paid by the taxpayer in the year as

(ii) office rent, or salary to an assistant or substitute, the payment of which

by the officer or employee was required by the contract of employment.

In fact, nothing in the agreement concluded between the Treasury Board of Canada and the Canadian Postmasters and Assistants Association directly requires the appellant to pay an assistant’s salary. Additionally, the only salary which the employer undertakes to pay is 4 hours a week at $4.30 an hour. Indirectly, it goes without saying that if the postmaster wishes to hire an assistant, he must pay her himself. Counsel maintained that all the clauses of an employment contract are not necessarily written in the contract. There are express clauses (written) and implied clauses (unwritten). At first sight, this argument seems somewhat specious. However, examined more closely, it describes the true position regarding these agreements. When the Act states “salary to an assistant . . . the payment of which by the officer or employee was required by the contract of employment”, does it mean only express, written clauses, or does it also include implied, unwritten clauses?

In the Board’s opinion the section applies to express, written clauses: otherwise, application of the opposite assumption would lead to ridiculous and inapplicable conclusions. Most agreements for employees or officers do not in fact expressly contain this clause: does that mean that any employee can hire a subordinate and pay him? According to counsel for the respondent, this is a section relating to a deduction. If there is any doubt or if it is not clear, a restrictive interpretation must operate against the taxpayer and the deduction must be denied.

However, should the “departmental practice” not be applied in a case of this kind? The Board feels that it should if the interpretation is ambiguous; however, the Board believes that the text is clear and that the clause must be express.

The deduction of $2,225 must accordingly be denied.

4.3.3 Employer’s contribution: $49.10

Counsel for the respondent admitted this deduction. Legally, however, it cannot be admitted as paragraph 8(1 )(l.1 ), which creates this deduction, imposes the condition that such contributions of the employer, made in accordance with the Unemployment Insurance Act, 1971 or a provincial pension plan, must be related to the salary of an individual paid in accordance with paragraph 8(1 )(ii). The provision reads as follows: “if an amount is deductible by the taxpayer for the year under subparagraph (i)(ii) in respect of that individual”. The Board has just decided (paragraph 4.3.2) that the sum of $2,225 may not be deducted pursuant to subparagraph 8(1)(i)(ii). The problem is then: is the Board bound by an admission of one party if it is contrary to the Act?

The Board believes it is not.

5. Conclusion

The appeal is allowed in part and the matter referred back to the respondent for reassessment in accordance with the foregoing reasons for judgment.

Appeal allowed in part.